Payroll basics for first-time employers

Taking on your first employee

Taking on your first employee is a big moment — and it brings with it a list of responsibilities you may not have thought about. The good news: none of it is complicated once you understand what’s required. Here’s the essentials.

1. Register as an employer

Before your first pay day, you need to register with HMRC as an employer. You’ll get a PAYE reference, which you need for payroll. Registering late attracts penalties, so do it early — even if you only have one employee.

2. Payroll under RTI

Under Real Time Information (RTI), you report pay and deductions to HMRC on or before each pay day — not at year end. This means:

• You need payroll software that’s RTI-compliant
• Each payment to your employee is reported with their tax code and gross pay
• National Insurance is calculated on each pay run

Almost all cloud payroll software handles this automatically. The main thing is to make sure it’s set up correctly from the start.

3. Tax codes and PAYE

Most employees have a tax code like 1257L. Your payroll software applies it to work out how much tax to deduct from each payment. You must also have a P45 or new-starter checklist for every new employee, which tells you their tax code and any previous employment details.

4. National Insurance

As an employer you pay Employer’s National Insurance on top of your employee’s salary, once their earnings pass a threshold. There’s also the Employment Allowance, which reduces your employer NI bill by up to £5,000 a year if you’re eligible — most small businesses qualify, so it’s worth making sure it’s applied.

5. Auto-enrolment

Most first-time employers are surprised by pensions. You have a legal duty to:

• Enrol eligible staff into a workplace pension scheme
• Pay at least the minimum employer contribution (currently 3% of qualifying earnings)
• Complete the declaration of compliance with The Pensions Regulator

There are postponement options in your first year of being an employer, but the obligation can’t be ignored — the regulator actively chases non-compliance.

6. Payslips

You must give every employee a payslip on or before each pay day, showing gross pay, deductions (tax, NI, pension, any student loan), and net pay.

Do it properly the first time

The biggest cause of payroll headaches is incorrect setup in the first few months — wrong tax codes, missed RTI submissions, or a forgotten pension enrolment. Getting help at the start is far cheaper than fixing problems later.

We run payroll for businesses of all sizes, from one employee upwards — including RTI, auto-enrolment and employee access to payslips. Get in touch to find out more.